Federal Reserve System

Purpose

Before the founding of the Federal Reserve System, the United States underwent several financial crises. A particularly severe crisis in 1907 led Congress to enact the Federal Reserve Act in 1913. The primary declared motivation for creating the Federal Reserve System was to address banking panics. Other stated purposes, are "to furnish an elastic currency, to afford means of rediscounting commercial paper, [and] to establish a more effective supervision of banking in the United States".

Today, the purposes of the Federal Reserve include the responsibilities to:

Address the problem of banking panics

Serve as the central bank for the United States

Balance private interests of banks and the centralized responsibility of government

Supervise and regulate banking institutions

Protect the credit rights of consumers

Conduct monetary policy by influencing market interest rates to achieve the goals of

Maximum employment

Stable prices, interpreted as an inflation rate of 2 percent per year on average

Moderate long-term interest rates

Maintain the stability of the financial system and contain systemic risk in financial markets

Provide financial services to depository institutions, the U.S. government, and foreign official institutions

Facilitate the exchange of payments among regions and the operation of the nation's payments system

Fractional-reserve bank

Banks usually invest the majority of the funds received from depositors. However, banking institutions in the United States are required to hold reserves‍—‌amounts of currency and deposits in other banks‍—‌equal to a fraction of the amount of the bank's deposit liabilities owed to customers. This practice is called fractional-reserve banking. On rare occasions, too many of the bank's customers will withdraw their savings such that the bank cannot continue operating on its own; this is called a bank run. Bank runs can lead to a multitude of social and economic problems. The Federal Reserve System was designed as an attempt to prevent or minimize the occurrence of bank runs, and possibly act as a lender of last resort when a bank run occurs. Many economists, following Nobel laureate Milton Friedman, believe that the Federal Reserve inappropriately refused to lend money to small banks during the bank runs of 1929; Friedman argued that this contributed to the Great Depression.

Before the establishment of the Federal Reserve, during times of economic uncertainty, some banks refused to clear checks from certain other banks, which led to large-scale bank failure in the early 20th-century. Hence, a national check-clearing system was created in the Federal Reserve System. The Federal Reserve can physically accept and transport cheques.

In the United States of America, the Federal Reserve serves as the lender of last resort to those institutions that cannot obtain credit elsewhere, institutions the collapse of which would have serious implications for the economy. It took over this role from the private sector clearing houses which operated during the Free Banking Era. The availability of liquidity is intended to prevent bank runs.

Reserve Banks provide liquidity to banks to meet short-term needs stemming from seasonal fluctuations in deposits or unexpected withdrawals through its discount window and credit operations. Longer-term liquidity may also be provided in exceptional circumstances. The rate the Fed charges banks for these loans is called the discount rate (officially the primary credit rate). By making these loans, the Fed serves as a buffer against unexpected day-to-day fluctuations in reserve demand and supply. This contributes to the effective functioning of the banking system, alleviates pressure in the reserves market, and reduces the extent of unexpected movements in the interest rates. For example, on September 16, 2008, the Federal Reserve Board authorized an $85 billion loan to stave off the bankruptcy of international insurance giant American International Group (AIG).

Central bank

As the central bank of the United States, the Fed serves as a banker's bank and as the government's bank. As the banker's bank, it helps to assure the safety and efficiency of the payments system. As the government's bank or fiscal agent, the Fed processes a variety of financial transactions involving trillions of dollars. The U.S. Treasury keeps a checking account with the Federal Reserve, through which incoming federal tax deposits and outgoing government payments are handled. As part of this service relationship, the Fed sells and redeems U.S. government securities such as savings bonds and Treasury bills, notes and bonds. It also issues the nation's coin and paper currency. The U.S. Treasury, through its Bureau of the Mint and Bureau of Engraving and Printing, actually produces the nation's cash supply and, in effect, sells the paper currency to the Federal Reserve Banks at manufacturing cost, and the coins at face value. The Federal Reserve Banks then distribute it to other financial institutions in various ways. During the Fiscal Year 2020, the Bureau of Engraving and Printing delivered 57.95 billion notes at an average cost of 7.4 cents per note.

Federal funds, officially Federal Reserve Deposits, are the reserve balances that private banks keep at their local Federal Reserve Bank. These balances are the namesake reserves of the Federal Reserve System. The purpose of keeping funds at a Federal Reserve Bank is to have a mechanism for private banks to lend funds to one another. This market for funds plays an important role in the Federal Reserve System as it is the basis for its monetary policy work. Monetary policy is put into effect partly by influencing how much interest the private banks charge each other for the lending of these funds. Federal reserve accounts contain federal reserve credit, which can be converted into federal reserve notes.

Bank regulator

The Federal Reserve regulates private banks. The system was designed out of a compromise between the competing philosophies of privatization and government regulation. In 2006 Donald L. Kohn, vice chairman of the board of governors, summarized the history of this compromise:

Agrarian and progressive interests, led by William Jennings Bryan, favored a central bank under public, rather than banker, control. However, the vast majority of the nation's bankers, concerned about government intervention in the banking business, opposed a central bank structure directed by political appointees.

The legislation that Congress ultimately adopted in 1913 reflected a hard-fought battle to balance these two competing views and created the hybrid public-private, centralized-decentralized structure that we have today.

In the structure of the Federal Reserve System, private banks elect members of the board of directors at their regional Federal Reserve Bank while the members of the board of governors are selected by the president of the United States and confirmed by the United States Senate.

The Board of Governors of the Federal Reserve System has a number of supervisory and regulatory responsibilities in the U.S. banking system, but not complete responsibility. A general description of the types of regulation and supervision involved in the U.S. banking system is given by the Federal Reserve:

The Board also plays a major role in the supervision and regulation of the U.S. banking system. It has supervisory responsibilities for state-chartered banks that are members of the Federal Reserve System, bank holding companies (companies that control banks), the foreign activities of member banks, the U.S. activities of foreign banks, and Edge Act and "agreement corporations" (limited-purpose institutions that engage in a foreign banking business). The Board and, under delegated authority, the Federal Reserve Banks, supervise approximately 900 state member banks and 5,000 bank holding companies. Other federal agencies also serve as the primary federal supervisors of commercial banks; the Office of the Comptroller of the Currency supervises national banks, and the Federal Deposit Insurance Corporation supervises state banks that are not members of the Federal Reserve System.

National payments system

In the Depository Institutions Deregulation and Monetary Control Act of 1980, Congress reaffirmed that the Federal Reserve should promote an efficient nationwide payments system. The act subjects all depository institutions, not just member commercial banks, to reserve requirements and grants them equal access to Reserve Bank payment services. The twelve Federal Reserve Banks provide banking services to depository institutions and to the federal government. For depository institutions, they maintain accounts and provide various payment services, including collecting checks, electronically transferring funds, and distributing and receiving currency and coin. For the federal government, the Reserve Banks act as fiscal agents, paying Treasury checks; processing electronic payments; and issuing, transferring, and redeeming U.S. government securities.

The Federal Reserve plays a role in the nation's retail and wholesale payments systems by providing financial services to depository institutions. Retail payments are generally for relatively small-dollar amounts and often involve a depository institution's retail clients. The Reserve Banks' retail banking services include distributing currency and coin, collecting checks, electronically transferring funds through FedACH (the Federal Reserve's automated clearing house system), and beginning in 2023, facilitating instant payments using the FedNow service. The Reserve Banks' wholesale banking services include electronically transferring funds through the Fedwire Funds Service and transferring securities issued by the U.S. government, its agencies, and certain other entities through the Fedwire Securities Service. Unlike retail services, wholesale payments are generally for large-dollar amounts and often involve a depository institution's large corporate customers or counterparties.

Structure

The Federal Reserve System has a "unique structure that is both public and private" and is described as "independent within the government" rather than "independent of government". The System does not draw upon public funding, and derives its authority and purpose from the Federal Reserve Act, which was passed by Congress in 1913 and is subject to Congressional modification or repeal. The four main components of the Federal Reserve System are the board of governors, the Federal Open Market Committee, the twelve regional Federal Reserve Banks, and the member banks throughout the country.

Board of governors

The seven-member board of governors is a large federal agency that functions in business oversight by examining national banks. It is charged with the overseeing of the 12 District Reserve Banks and setting national monetary policy. It also supervises and regulates the U.S. banking system in general. Governors are appointed by the president of the United States and confirmed by the Senate for staggered 14-year terms. One term begins every two years, on February 1 of even-numbered years, and members serving a full term cannot be renominated for a second term. "[U]pon the expiration of their terms of office, members of the Board shall continue to serve until their successors are appointed and have qualified." The law provides for the removal of a member of the board by the president of the United States "for cause". The board is required to make an annual report of operations to the Speaker of the U.S. House of Representatives.

The chair and vice chair of the board of governors are appointed by the president of the United States from among the sitting governors. They both serve a four-year term and they can be renominated as many times as the president chooses, until their terms on the board of governors expire.

On May 13, 2026, the United States Senate confirmed Kevin Warsh in a 54–45 vote to succeed Powell as the 17th chair of the Federal Reserve, with Powell's term expiring on May 15, 2026.

The current members of the board of governors are:

Federal Open Market Committee

The Federal Open Market Committee (FOMC) consists of 12 members, seven from the board of governors and five from the regional Federal Reserve Bank presidents, and must obtain consensus on all decisions. The FOMC oversees and sets policy on open market operations, the principal tool of national monetary policy. The FOMC also directs operations undertaken by the Federal Reserve in foreign exchange markets. All Regional Reserve Bank presidents contribute to the committee's assessment of the economy and of policy options, but only the five presidents who are then members of the FOMC vote on policy decisions. The FOMC determines its own internal organization and, by tradition, elects the chair of the board of governors as its chair and the president of the Federal Reserve Bank of New York as its vice chair. Formal meetings typically are held eight times each year in Washington, D.C.

There is very strong consensus among economists against politicising the FOMC.

Federal Advisory Council

The Federal Advisory Council (FAC) is a statutory body established under the Federal Reserve Act of 1913 to provide the Board of Governors of the Federal Reserve System with insights and recommendations from the banking industry and regional economic perspectives. Comprising one representative from each of the 12 Federal Reserve Districts, the Council meets at least four times annually in Washington, D.C. to discuss economic and banking issues and offer advisory opinions to the Board. Each Federal Reserve Bank’s board of directors selects its district’s representative, typically a senior executive from a member bank, ensuring diverse geographic and institutional input.

Federal Reserve Banks

There are 12 Federal Reserve Banks, each of which is responsible for member banks located in its district. They are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. The size of each district was set based upon the population distribution of the United States when the Federal Reserve Act was passed. The charter and organization of each bank is established by law and cannot be altered by the member banks. Each regional bank has a president, who is the chief executive officer of their bank. Each president is nominated by their bank's board of directors, but the nomination is contingent upon approval by the board of governors. Presidents serve five-year terms and may be reappointed.

Member banks

A member bank is a private institution and owns stock in its regional Federal Reserve Bank. All nationally chartered banks hold stock in one of the Federal Reserve Banks. State chartered banks may choose to be members (and hold stock in their regional Federal Reserve bank) upon meeting certain standards. The amount of stock a member bank must own is equal to 3% of its combined capital and surplus. About 38% of U.S. banks are members of their regional Federal Reserve Bank.

Holding stock in a Federal Reserve bank is not like owning stock in a publicly traded company. These stocks cannot be sold or traded, and member banks do not control the Federal Reserve Bank as a result of owning this stock. From their Regional Bank, member banks with $10 billion or less in assets receive a dividend of 6%, while member banks with more than $10 billion in assets receive the lesser of 6% or the current 10-year Treasury auction rate. The remainder of the regional Federal Reserve Banks' profits is given over to the United States Treasury Department. In 2015, the Federal Reserve Banks made a profit of $100.2 billion and distributed $2.5 billion in dividends to member banks as well as returning $97.7 billion to the U.S. Treasury.

Accountability

An external auditor selected by the audit committee of the Federal Reserve System regularly audits the Board of Governors and the Federal Reserve Banks. The GAO will audit some activities of the Board of Governors. These audits do not cover "most of the Fed's monetary policy actions or decisions, including discount window lending, open-market operations and any other transactions made under the direction of the Federal Open Market Committee" ...[nor may the GAO audit] "dealings with foreign governments and other central banks."

The annual and quarterly financial statements prepared by the Federal Reserve System conform to a basis of accounting that is set by the Federal Reserve Board and does not conform to Generally Accepted Accounting Principles (GAAP) or government Cost Accounting Standards (CAS). The financial reporting standards are defined in the Financial Accounting Manual for the Federal Reserve Banks. The cost accounting standards are defined in the Planning and Control System Manual. As of 27 August 2012, the Federal Reserve Board has been publishing unaudited financial reports for the Federal Reserve banks every quarter.

On November 7, 2008, Bloomberg L.P. brought a lawsuit against the board of governors of the Federal Reserve System to force the board to reveal the identities of firms for which it provided guarantees during the 2008 financial crisis. Bloomberg, L.P. won at the trial court and the Fed's appeals were rejected at both the United States Court of Appeals for the Second Circuit and the U.S. Supreme Court. The data was released on March 31, 2011.

Monetary policy

The term "monetary policy" refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence economic activity (the overall demand for goods and services) to help promote national economic goals. The Federal Reserve Act of 1913 gave the Federal Reserve authority to set monetary policy in the United States. The Fed's mandate for monetary policy is commonly known as the dual mandate of promoting maximum employment and stable prices, the latter being interpreted as a stable inflation rate of 2 percent per year on average. The Fed's monetary policy influences economic activity by influencing the general level of interest rates in the economy, which again via the monetary transmission mechanism affects households' and firms' demand for goods and services and in turn employment and inflation.

Interbank lending

The Federal Reserve sets monetary policy by influencing the federal funds rate (FFR), which is the rate of interbank lending of reserve balances. The rate that banks charge each other for these loans is determined in the interbank market, and the Federal Reserve influences this rate through the "tools" of monetary policy described in the Tools section below. The federal funds rate is a short-term interest rate that the FOMC focuses on, which affects the longer-term interest rates throughout the economy. The Federal Reserve explained the implementation of its monetary policy in 2021:

The FOMC has the ability to influence the federal funds rate–and thus the cost of short-term interbank credit–by changing the rate of interest the Fed pays on reserve balances that banks hold at the Fed. A bank is unlikely to lend to another bank (or to any of its customers) at an interest rate lower than the rate that the bank can earn on reserve balances held at the Fed. And because overall reserve balances are currently abundant, if a bank wants to borrow reserve balances, it likely will be able to do so without having to pay a rate much above the rate of interest paid by the Fed.

Changes in the target for the federal funds rate affect overall financial conditions through various channels, including subsequent changes in the market interest rates that commercial banks and other lenders charge on short-term and longer-term loans, and changes in asset prices and in currency exchange rates, which again affects private consumption, investment and net export. By easening or tightening the stance of monetary policy, i.e. lowering or raising its target for the federal funds rate, the Fed can either spur or restrain growth in the overall US demand for goods and services.

Tools

There are four main tools of monetary policy that the Federal Reserve uses to implement its monetary policy:

Interest on reserve balances (IORB)

Interest paid on funds that banks hold in their reserve balance accounts at their Federal Reserve Bank. IORB is the primary tool for moving the federal funds rate within the target range.

Overnight reverse repurchase agreement (ON RRP) facility

The Fed's standing offer to many large nonbank financial institutions to deposit funds at the Fed and earn interest. Acts as a supplementary tool for moving the FFR within the target range.

Open market operations

Purchases and sales of U.S. Treasury and federal agency securities. Used to maintain an ample supply of reserves.

Discount window

The Fed's lending to banks at the discount rate. Helps put a ceiling on the FFR.

The Federal Reserve System implements monetary policy largely by targeting the federal funds rate. This is the interest rate that banks charge each other for overnight loans of federal funds, which are the reserves held by banks at the Fed. This rate is actually determined by the market and is not explicitly mandated by the Fed. The Fed therefore tries to align the effective federal funds rate with the targeted rate, mainly by adjusting its IORB rate. The Federal Reserve System usually adjusts the federal funds rate target by 0.25% or 0.50% at a time.

The interest on reserve balances (IORB) is the interest that the Fed pays on funds held by commercial banks in their reserve balance accounts at the individual Federal Reserve System banks. It is an administrated interest rate (i.e. set directly by the Fed as opposed to a market interest rate which is determined by the forces of supply and demand). As banks are unlikely to lend their reserves in the FFR market for less than they get paid by the Fed, the IORB guides the effective FFR and is used as the primary tool of the Fed's monetary policy.

Expired policy tools

An instrument of monetary policy adjustment historically employed by the Federal Reserve System was the fractional reserve requirement, also known as the required reserve ratio. The required reserve ratio set the balance that the Federal Reserve System required a depository institution to hold in the Federal Reserve Banks. The required reserve ratio was set by the board of governors of the Federal Reserve System. The reserve requirements have changed over time and some history of these changes is published by the Federal Reserve.

As a response to the 2008 financial crisis, the Federal Reserve started making interest payments on depository institutions' required and excess reserve balances. The payment of interest on excess reserves gave the central bank greater opportunity to address credit market conditions while maintaining the federal funds rate close to the target rate set by the FOMC. The reserve requirement did not play a significant role in the post-2008 interest-on-excess-reserves regime, and in March 2020, the reserve ratio was set to zero for all banks, which meant that no bank was required to hold any reserves, and hence the reserve requirement effectively ceased to exist, though the legal framework exists for it to be reinstated at any time.

In order to address problems related to the subprime mortgage crisis and United States housing bubble, several new tools were created. The first new tool, called the Term Auction Facility, was added on December 12, 2007. It was announced as a temporary tool, but remained in place for a prolonged period of time. Creation of the second new tool, called the Term Securities Lending Facility, was announced on March 11, 2008. The main difference between these two facilities was that the Term Auction Facility was used to inject cash into the banking system whereas the Term securities Lending Facility was used to inject treasury securities into the banking system. Creation of the third tool, called the Primary Dealer Credit Facility (PDCF), was announced on March 16, 2008. The PDCF was a fundamental change in Federal Reserve policy because it enabled the Fed to lend directly to primary dealers, which was previously against Fed policy. The differences between these three facilities was described by the Federal Reserve:

The Term auction Facility program offers term funding to depository institutions via a bi-weekly auction, for fixed amounts of credit. The Term securities Lending Facility will be an auction for a fixed amount of lending of Treasury general collateral in exchange for OMO-eligible and AAA/Aaa rated private-label residential mortgage-backed securities. The Primary Dealer Credit Facility now allows eligible primary dealers to borrow at the existing Discount Rate for up to 120 days.

History

Central banking in the United States, 1791–1913

The first attempt at a national currency was during the American Revolutionary War. In 1775, the Continental Congress, as well as the states, began issuing paper currency, calling the bills "Continentals". The Continentals were backed only by future tax revenue, and were used to help finance the Revolutionary War. Overprinting, as well as British counterfeiting, caused the value of the Continental to diminish quickly. This experience with paper money led the United States to strip the power to issue Bills of Credit (paper money) from a draft of the new Constitution on August 16, 1787, as well as banning such issuance by the various states, and limiting the states' ability to make anything but gold or silver coin legal tender on August 28.

In 1791, the government granted the First Bank of the United States a charter to operate as the U.S. central bank until 1811. The First Bank of the United States came to an end under President Madison when Congress refused to renew its charter. The Second Bank of the United States was established in 1816, and lost its authority to be the central bank of the U.S. twenty years later under President Jackson when its charter expired. Both banks were based upon the Bank of England. Ultimately, a third national bank, known as the Federal Reserve, was established in 1913 and still exists to this day.

The first U.S. institution with central banking responsibilities was the First Bank of the United States, chartered by Congress and signed into law by President George Washington on February 25, 1791, at the urging of Alexander Hamilton. This was done despite strong opposition from Thomas Jefferson and James Madison, among numerous others. The charter was for twenty years and expired in 1811 under President Madison, when Congress refused to renew it.

In 1816, however, Madison revived it in the form of the Second Bank of the United States. Years later, early renewal of the bank's charter became the primary issue in the reelection of President Andrew Jackson. After Jackson, who was opposed to the central bank, was reelected, he pulled the government's funds out of the bank. Jackson was the only President to completely pay off the national debt but his efforts to close the bank contributed to the Panic of 1837. The bank's charter was not renewed in 1836, and it would fully dissolve after several years as a private corporation.

Federal Reserve era, 1913–present

Key laws affecting the Federal Reserve have been:

The Banking Act of 1935 created the modern structure of the Federal Reserve and placed monetary decisions beyond presidential control, thus enshrining the independence of the Federal Reserve.

Economic data

The Federal Reserve records and publishes large amounts of data, including the Board of Governors' Economic Data and Research page, Statistical Releases and Historical Data Page, and the St. Louis Fed's FRED (Federal Reserve Economic Data) page. The Federal Open Market Committee (FOMC) examines many economic indicators prior to determining monetary policy. Some economists have criticised the economic data compiled by the Fed. The Fed sponsors much of the monetary economics research in the U.S., and Lawrence H. White objects that this makes it less likely for researchers to publish findings challenging the status quo.

Net worth of households and nonprofit organizations

The net worth of households and nonprofit organizations in the United States is published by the Federal Reserve in a report titled Flow of Funds. At the end of the third quarter of fiscal year 2012, this value was $64.8 trillion. At the end of the first quarter of fiscal year 2014, this value was $95.5 trillion. As of the fourth quarter of 2024, the net worth of households and nonprofit organizations reached $172.7 trillion, driven primarily by gains in corporate equity and real estate values.

Money supply

The most common measures are named M0 (narrowest), M1, M2, and M3. In the United States they are defined by the Federal Reserve as follows:

The Federal Reserve stopped publishing M3 statistics in March 2006, saying that the data cost a lot to collect but did not provide significantly useful information. The other three money supply measures continue to be provided in detail.

Personal consumption expenditures price index

The personal consumption expenditures price index, also referred to as simply the PCE price index, is used as one measure of the value of money. It is a United States-wide indicator of the average increase in prices for all domestic personal consumption. Using a variety of data including United States Consumer Price Index and U.S. Producer Price Index prices, it is derived from the largest component of the gross domestic product in the BEA's National Income and Product Accounts, personal consumption expenditures.

One of the Fed's main roles is to maintain price stability, which means that the Fed's ability to keep a low inflation rate is a long-term measure of their success. Although the Fed is not required to maintain inflation within a specific range, their long run target for the growth of the PCE price index is between 1.5 and 2 percent. There has been debate among policy makers as to whether the Federal Reserve should have a specific inflation targeting policy.

Most mainstream economists favor a low, steady rate of inflation. Chief economist, and advisor to the Federal Reserve, the Congressional Budget Office and the Council of Economic Advisers, Diane C. Swonk observed, in 2022, that "From the Fed's perspective, you have to remember inflation is kind of like cancer. If you don't deal with it now with something that may be painful, you could have something that metastasized and becomes much more chronic later on."

Low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduce the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities.

Budget

The Federal Reserve is self-funded. Over 90% of Fed revenues come from open market operations, specifically the interest on the portfolio of Treasury securities as well as "capital gains/losses" that may arise from the buying/selling of the securities and their derivatives as part of Open Market Operations. The balance of revenues come from sales of financial services (check and electronic payment processing) and discount window loans.

The Federal Reserve Board creates a budget report once per year for Congress. There are two reports with budget information. The one that lists the complete balance statements with income and expenses, as well as the net profit or loss, is the large report simply titled, "Annual Report". It also includes data about employment throughout the system. The other report, which explains in more detail the expenses of the different aspects of the whole system, is called "Annual Report: Budget Review".

Remittance payments to the Treasury

The Federal Reserve has been remitting interest that it has been receiving back to the United States Treasury. Most of the assets the Fed holds are U.S. Treasury bonds and mortgage-backed securities that it has been purchasing as part of quantitative easing since the 2008 financial crisis. In 2022, the Fed started quantitative tightening (QT) and selling these assets and taking a loss on them in the secondary bond market. As a result, the nearly $100 billion that it was remitting annually to the Treasury, is expected to be discontinued during QT.

In 2023, the Federal Reserve reported a net negative income of $114.3 billion. This triggered the creation of a deferred asset liability on the Federal Reserve balance sheet booked as "Interest on Federal Reserve notes due to U.S. Treasury" totaling $133.3 billion. The deferred asset is the amount of net excess revenues the Federal Reserve must realize before remittances can continue. It does not have any impact on the ability of the Federal Reserve to conduct monetary policy or meet its obligations. The Federal Reserve has estimated the deferred asset will last until mid-2027.

Balance sheet

One of the keys to understanding the Federal Reserve is the Federal Reserve balance sheet (or balance statement). In accordance with Section 11 of the Federal Reserve Act, the board of governors of the Federal Reserve System publishes once each week the "Consolidated Statement of Condition of All Federal Reserve Banks" showing the condition of each Federal Reserve bank and a consolidated statement for all Federal Reserve banks. The board of governors requires that excess earnings of the Reserve Banks be transferred to the Treasury as interest on Federal Reserve notes.

The Federal Reserve releases its balance sheet every Thursday. Below is the balance sheet as of 8 April 2021 (in billions of dollars):

In addition, the balance sheet also indicates which assets are held as collateral against Federal Reserve Notes.

As of August 2024, the Fed's total assets on balance sheet were $7.139 trillion.

Criticism

The Federal Reserve System has faced various criticisms since its inception in 1913. Some of the most common critiques focus on its monetary policy, lack of transparency, and its potential role in exacerbating financial instability. Critics argue that the Fed’s expansionary policies—such as lowering interest rates and increasing the money supply—can lead to inflation, asset bubbles, and economic distortions. Prominent economists like Milton Friedman have criticized the Fed for contributing to economic downturns, including its role in the Great Depression. Economist Hans Sennholz called the Fed's creation, "the most tragic blunder ever committed by Congress. The day it was passed, old America died and a new era began. A new institution was born that was to cause, or greatly contribute to, the unprecedented economic instability in the decades to come."

Libertarian figures such as Ron Paul have been especially vocal in calling for greater accountability and transparency within the Fed, advocating for measures such as auditing the Federal Reserve to ensure it serves the public interest rather than benefiting large financial institutions. Additionally, some critics, including Rand Paul, argue that the Fed disproportionately serves the interests of the banking elite, given the backgrounds of many of its officials in finance and banking, leading to potential conflicts of interest and policies that favor Wall Street over the general economy.

Another area of criticism is the Federal Reserve’s departure from the gold standard in 1971, which many argue has contributed to long-term inflationary pressures and a devaluation of the U.S. dollar. Ron Paul believes the Fed should be abolished and replaced with a return to the gold standard. Advocates of Austrian economics, such as Ludwig von Mises and Murray Rothbard, believe that the move to fiat currency destabilized the monetary system and undermined financial stability. The Federal Reserve’s handling of the 2008 financial crisis has also been a focal point of criticism, with some arguing that the Fed’s response—bailing out large banks and financial institutions—created moral hazard and worsened the economic collapse.

During COVID-19 pandemic, the Federal Reserve's policies such as increasing its bank reserves, quantitative easing (QE), and keeping interest rates near zero until March 2022 had been criticised by economists, especially monetarists, as greatly contributing to the inflation spike which peaked at a record high in half a century. Part of the Fed's policy during the Covid-19 pandemic arguably cemented moral hazard and exposed the lack of Federal Reserve independence. Scott Minerd the Chief Officer of Investments at Guggenheim Investments explained that 2020 stimulus socialized credit risk and the price of a loan would now be determined by the Fed's willingness to buy it. In 2021, the federal reserve rewrote its trading rules after two senior officials at the Fed made ethically questionable trades amidst the start of the pandemic.